I spent 2 days in developing a model for Monero price scenarios.
The idea was to construct a scenario tree with the following point-estimates:
- Price in 31.12.2015
- Price in 31.12.2016 on the condition that the previous price was X
- Price in 31.12.2017 on the condition that the previous price was X.
As prices were grouped in multiples of 10 only, it yielded a reasonably practical model that prompted to make 10 point-estimates and required the calculation of 145 scenario trees.
The results might be of interest here as well, tldr: in 61% probability you lose all, yet the average gain is 3700% in 32 months due to the presence of very positive scenarios in low probabilities.
This methodology might interest more readers if applied to Bitcoin, and I am willing to do it - but not without your help
I have not researched Bitcoin that much since finding Monero, so I need inputs on the point-estimates. They are presented in the following format:
date, on condition of price range X in previous date
probability of price in range (30,000-300,000 USD)
probability of price in range (3,000-30,000 USD)
probability of price in range (300-3,000 USD)
probability of price in range (30-300 USD)
probability of total loss during the period
The major finding from Monero was that it does not matter much how probable it is to lose all, since you can only lose what you invest, while the upside may be several orders of magnitude. With Bitcoin, the gross potential upside is much less (essentially the difference in the marketcap of the coins, almost 1000x), and therefore it is more important to be able to accurately estimate the downside as well as upside.
- What essential threats remain that would cause Bitcoin to reach a value of less than $30, or become unusable technically? (Political threats such as all major countries banning it are relevant only if they cause the price in the free world to collapse as a result - historically things tend to increase in price when banned)
- What is the probability that a technical failure would make Bitcoin not trustable (break in cryptography type of event), annualized?
- How likely is the "shutdown of Internet" type of event which would damage Bitcoin's usability, without endangering the balances, and what would happen to the price in this event?
- What needs to happen for Bitcoin to languish in these very low levels an additional number of months, despite the great increase of VC and economic activity and adoption as measured by any metric available?
- If a new price growth surge is achieved, what mechanisms will be the determining ones to cap it and at what price?
- ... (the list of interesting questions that I don't know the answer nor have even much thought about in the last few months)
On the positive side concerning the research, I am good in statistical modelling and this model is tested just this week and is ready to produce very interesting results with Bitcoin as well, when we get the point-estimates correct!
The idea was to construct a scenario tree with the following point-estimates:
- Price in 31.12.2015
- Price in 31.12.2016 on the condition that the previous price was X
- Price in 31.12.2017 on the condition that the previous price was X.
As prices were grouped in multiples of 10 only, it yielded a reasonably practical model that prompted to make 10 point-estimates and required the calculation of 145 scenario trees.
The results might be of interest here as well, tldr: in 61% probability you lose all, yet the average gain is 3700% in 32 months due to the presence of very positive scenarios in low probabilities.
This methodology might interest more readers if applied to Bitcoin, and I am willing to do it - but not without your help
I have not researched Bitcoin that much since finding Monero, so I need inputs on the point-estimates. They are presented in the following format:
date, on condition of price range X in previous date
probability of price in range (30,000-300,000 USD)
probability of price in range (3,000-30,000 USD)
probability of price in range (300-3,000 USD)
probability of price in range (30-300 USD)
probability of total loss during the period
The major finding from Monero was that it does not matter much how probable it is to lose all, since you can only lose what you invest, while the upside may be several orders of magnitude. With Bitcoin, the gross potential upside is much less (essentially the difference in the marketcap of the coins, almost 1000x), and therefore it is more important to be able to accurately estimate the downside as well as upside.
- What essential threats remain that would cause Bitcoin to reach a value of less than $30, or become unusable technically? (Political threats such as all major countries banning it are relevant only if they cause the price in the free world to collapse as a result - historically things tend to increase in price when banned)
- What is the probability that a technical failure would make Bitcoin not trustable (break in cryptography type of event), annualized?
- How likely is the "shutdown of Internet" type of event which would damage Bitcoin's usability, without endangering the balances, and what would happen to the price in this event?
- What needs to happen for Bitcoin to languish in these very low levels an additional number of months, despite the great increase of VC and economic activity and adoption as measured by any metric available?
- If a new price growth surge is achieved, what mechanisms will be the determining ones to cap it and at what price?
- ... (the list of interesting questions that I don't know the answer nor have even much thought about in the last few months)
On the positive side concerning the research, I am good in statistical modelling and this model is tested just this week and is ready to produce very interesting results with Bitcoin as well, when we get the point-estimates correct!
Things tend to increase in price when banned if there are no legal alternatives. Alcohol prohibition in the US is a good example. Different story if there are accessible legal avenues to get your fix. Contraband cigarettes (much cheaper). Colorado legalized pot and look what happened. Price was about double what you'd pay from the neighbourhood unlicensed pot dealer. Taxation and overhead is the killer.
If governments around the world banned bitcoin, corporate, bank and government coins will have the green light using blockchain tech. Our mainstream decentralized dream is over. We're back where we started, with bitcoins used for internet gambling (especially US citizens) and buying drugs. And not much else. What would the value of bitcoins be if pushed underground for eternity?
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